2
Place of Provision of Service
2.1 Introduction
Service tax is a consumption based tax. A service should be taxed in the jurisdiction of its
consumption. However, it is not easy to determine the jurisdiction of consumption of services.
There could be a case where services are provided by a person located at one location,
actually performed at another while being delivered to a person located at a third location, and
occasionally actually consumed at a another location or over a larger geographical territory,
falling in more than one taxable jurisdiction.
Further, as per the charging section-section 66B, service tax is levied on the services,
provided or agreed to be provided in the taxable territory. Hence, only those services which
are provided in the taxable territory would be liable to service tax and the services provided in
the non-taxable territory would not be taxed.
In the given scenario, it is of paramount importance to determine the place of provision of a
service as the taxability of the service would be determined based on the place of its
provision.
(a) Place of Provision of Service Rules, 2012 to determine the place where a service is
deemed to be provided: Place of Provision of Service Rules specifies the manner to
determine the taxing jurisdiction for a service. These rules would determine the place
where a service shall be deemed to be provided, in terms of section 66C read with
section 94(hhh) of Chapter V of the Finance Act, 1994. Thus, if a service is provided in
the taxable territory as per the said rules, it shall be chargeable to service tax, otherwise
not. These rules have been notified vide Notification No. 28/2012-S.T. dated 20.06.2012.
(b) Persons for whom the rules are relevant: Place of Provision of Service Rules are
primarily meant for the persons who deal in cross border services. These rules are also
applicable for those who have operations with suppliers or customers in the State of
Jammu and Kashmir. Moreover, service providers operating within India from multiple
locations, without having centralized registration would find these rules useful in
determining the precise taxable jurisdiction applicable to their operations. The rules will
be equally relevant for determining services that are wholly consumed within a SEZ, to
avail the outright exemption.
© The Institute of Chartered Accountants of India
Place of Provision of Service
2.2
(c) Import and export of services
Upto June 30, 2012: Upto June 30, 2012, the provisions relating to import and export of
services were contained in the ‘Taxation of Services (Provided from Outside India and
Received in India) Rules, 2006 and the Export of Services, Rules, 2005 respectively.
These erstwhile rules used to handle the subject of place of provision of services
indirectly, confining to define the circumstances in which a provision of service would
constitute import or export.
With effect from July 1, 2012: With the advent of the Place of Provision of Service
Rules, import of services is when any taxable service is provided or agreed to be
provided by any person who is located in the non-taxable territory and received by any
person located in the taxable territory. Further, a service would be considered as export
of service in case the conditions specified by rule 6A of the Service Tax Rules, 1994 are
fulfilled.
2.2 Power of the Central Government to frame the rules
Section 66C empowers the Central Government to frame rules having regard to the nature
and description of various services, to determine the place where such services are provided
or deemed to have been provided or agreed to be provided or deemed to have been agreed to
be provided. Any rule made hereunder shall not be invalid merely on the ground that either
the service provider or the service receiver or both are located at a place being outside the
taxable territory.
Place of Provision of Service Rules, 2012 at a glance
Rule
Applicability
3
General rule
4
In case where services are provided in respect of
goods that are required to be made physically
available to the service provider
In case of services which require the physical
presence of the receiver or the person acting on
behalf of the receiver, with service provider
In case of services provided directly in relation to
an immovable property
5
6
In case of services provided by way of admission
to, or organization of, a cultural, artistic, sporting,
scientific, educational, or entertainment event, or a
celebration, conference, fair, exhibition, or similar
© The Institute of Chartered Accountants of India
Place of provision of
service shall be
location of the recipient of
service
location where the services
are actually performed
place where the immovable
property is located or
intended to be located.
the place where the event is
actually held.
2.3
7
8
9
10
11
12
13
14
Service Tax
events, and of services ancillary to such admission
Where any service referred to in rules 4, 5, or 6 is
provided at more than one location, including a
location in the taxable territory
Where the location of the service provider well as
that of service receiver is in the taxable territory
In case of
(a) Services provided by a banking company, or a
financial institution, or a non-banking financial
company, to account holders;
(b) Online information and database access or
retrieval services;
(c) Intermediary services;
(d) Service consisting of hiring of means of
transport, upto a period of one month.
In case of services of transportation of goods, other
than by way of mail or courier
In respect of a passenger transportation service
location in the taxable territory
where the greatest proportion
of the service is provided
location of the recipient of
service
location of the service
provider
place of destination of the
goods
place where the passenger
embarks on the conveyance
for a continuous journey
In case of services provided on board a the first scheduled point of
of
that
conveyance during the course of a passenger departure
transport operation, including services intended to conveyance for the journey
be wholly or substantially consumed while on board
In order to prevent double taxation or non-taxation of the provision of a service, or
for the uniform application of rules, the Central Government shall have the power
to notify any description of service or circumstances in which the place of provision
shall be the place of effective use and enjoyment of a service.
Notwithstanding anything stated in any rule, where the provision of a service is,
prima facie, determinable in terms of more than one rule, it shall be determined in
accordance with the rule that occurs later among the rules that merit equal
consideration.
2.3 Rule 3 - Main rule-Location of the receiver
The place of provision of a service shall be the location of service receiver.
However, in case the location of the service receiver is not available in the ordinary
course of business, the place of provision shall be the location of the service provider.
(A) ANALYSIS OF THE MAIN RULE: The default rule provides that a service shall be
deemed to be provided where the service receiver is located. The main rule would
apply when none of the later rules apply. Thus, if a service is not covered by an
exception under one of the later rules, and is consequently covered under this default
© The Institute of Chartered Accountants of India
Place of Provision of Service
2.4
rule, then the receiver’s location will determine whether the service is leviable to tax in
the taxable territory.
Note: The address of the service receiver should be available in the ordinary course of
business and the service provider is not required to make any extraordinary efforts to
trace his address.
Place of provision to be the location of the service provider if the location of
receiver is not ascertainable in the ordinary course of business
Generally, in case of a service provided to a person who is in business, the service
provider will have the location of the recipient’s registered location, or his business
establishment, or his fixed establishment etc, as the case may be.
However, in case of certain services (which are not covered by the exceptions to the
main rule), the service provider may not have the location of the service receiver, in the
ordinary course of his business. This will also be the case where a service is provided to
an individual customer who comes to the premises of the service provider for availing the
service and the provider has to, more often than not, rely on the declared location of the
customer. In such cases, the place of provision will be the location of the service
provider.
(B) IMPLICATION OF THE RULE
(i)
Where the location of receiver of a service is in the taxable territory, such service will be
deemed to be provided in the taxable territory and service tax will be payable.
(ii)
Where the location of receiver of a service is outside the taxable territory, no service
tax will be payable on the said service.
Under normal circumstances, a service provider is liable to pay service tax. However, if
he is located outside the taxable territory and the place of provision of service is in the
taxable territory, the person liable to pay service tax is service receiver in the taxable
territory.
Taxable territory
ABC Service
Provider
Non-taxable territory
Not
Taxable
DEF Service
Receiver
Taxable (SP)
PQR Service
Receiver
© The Institute of Chartered Accountants of India
Taxable
(SR)
XYZ Service
Provider
2.5
Service Tax
2.3.1 Determination of the Location of the Service Receiver/Service Provider: “Location
of the service provider/service receiver” is determined by applying the following steps
sequentiallyA.
Where the service provider/service receiver has obtained a single registration, whether
centralized or otherwise, the premises for which such registration has been obtained.
It implies that in case the service provider/receiver has more than one unit, he must have
obtained centralized registration in order to be covered under this clause.
B.
Where the service provider/service receiver is not covered under point A. above:
(i)
The location of his business establishment; or
Business establishment: is the place where the essential decisions concerning the
general management of the business are adopted, and where the functions of its
central administration are carried out.
This could be head office, or a factory, or a workshop, or shop/ retail outlet. However, a
service provider or receiver can have only one business establishment.
For instance, head office of M/s ABC Enterprises is in India, and its branches are in
Malaysia, Singapore and London. The business establishment of M/s ABC Enterprises
is in India.
(ii) Where the services are provided from/used at a place other than the business
establishment, that is to say, a fixed establishment elsewhere, the location of such
establishment; or
Fixed establishment: is a place (other than the business establishment) where
there is a permanent and adequate human and technical resources to provide the
services that are to be supplied by it, or to enable it to receive and use the
services supplied to it for its own needs.
It may be noted that in case the staff is temporarily available by way of a short visit
to a place, such place cannot be termed as fixed establishment.
For instance, George Telecoms of USA sets up an office with staff in India to provide
services to Indian customers. Fixed establishment of George Telecoms is in India.
(iii) Where services are provided from/used at more than one establishment, whether
business or fixed, the establishment most directly concerned with the
provision/use of the service; and
Whether the establishment is most directly concerned with the provision/use of
the service depends on the facts and supporting documentation, specific to each
case. The documentation will include the following:¾
written contract(s) or any written correspondence which sets out in detail
their understanding of the oral contract between the service provider and
© The Institute of Chartered Accountants of India
Place of Provision of Service
2.6
receiver;
¾
in particular, for suppliers, from which establishment the services are actually
provided;
¾
in particular, for receivers, at which establishment the services are actually
consumed, effectively used or enjoyed;
¾
details of how the business fits into any larger corporate structure;
¾
the establishment whose staff is actually involved in the execution of the job;
¾
performance agreements (which may be indicative both of the substance and
actual nature of work performed at a particular establishment);
Thus, normally in the case of multiple establishments of a person, it will be the
establishment that actually provides, or receives, a service that would be treated
as ‘directly concerned’ with the provision of service, notwithstanding the
contractual position, or invoicing or payment.
For instance, Shubham Ltd. is incorporated in India. However, it provides its services
entirely from London. In the instant case, the location of Shubham Ltd. is London,
being the place where the establishment most directly concerned with the supply is
located.
(iv) In the absence of such places, the usual place of residence of the service
provider/service receiver.
Usual place of residence:
In case of
Usual place of residence
(i) A body corporate
of service provider/service receiver is the
place where it is incorporated or otherwise
legally constituted.
(ii) Telecommunication services
of service receiver is the billing address of
service receiver.
(iii) An Individual
of service provider/service receiver is the
place (country, state etc) where the individual
spends most of his time for the period in
question. Hence, an individual cannot have
more than one usual place of residence.
2.4. Rule 4- Place of provision of performance based services
The place of provision of following services shall be the location where the services are
actually performed, namely:(a) Services provided in respect of goods that are required to be made physically available
by the recipient of service to the provider of service, or to a person acting on behalf of the
provider of service, in order to provide the service.
© The Institute of Chartered Accountants of India
2.7
Service Tax
However, when such services are provided from a remote location by way of electronic
means, the place of provision shall be the location where goods are situated at the time
of provision of service.
Further, this sub-rule shall not apply in the case of a service provided in respect of goods
that are temporarily imported into India for repairs, reconditioning or reengineering for reexport, subject to conditions as may be specified in this regard.
(b) Services provided to an individual, represented either as the recipient of service or a
person acting on behalf of the recipient, which require the physical presence of the
receiver or the person acting on behalf of the receiver, with the provider for the provision
of the service.
Analysis of the rule
Clause (a): The nature of services covered here are the services that are related to goods,
and which require such goods to be made available to the service provider/person acting on
behalf of the service provider so that the service can be rendered. It will not cover services
where the supply of goods by the receiver is not material to the rendering of the service. The
place of provision of such services shall be the location where the services are actually
performed.
1.
Only those services would be covered here the provision of which requires the goods to
temporarily come into the physical possession or control of the service provider, and
without this happening, the service cannot be rendered.
2.
Service involves movable objects or things that can be touched, felt or possessed.
3.
Examples of such services are:-
4.
•
repair, reconditioning, or any other work on goods (not amounting to manufacture)
•
storage and warehousing
•
courier service
•
cargo handling service (loading, unloading, packing or unpacking of cargo)
•
technical testing/inspection/certification/ analysis of goods
•
dry cleaning
Sometimes, services are provided by electronic means in relation to tangible goods
located distantly from a remote location. In such a case, the actual place of performance
of the service would be quite different from the actual location of the tangible goods. The
place of provision here shall be the actual location of the goods and not the place of
performance.
Clause (b): The nature of services covered here are the services which are rendered in
person and in the physical presence of the service receiver. The place of provision of such
services shall be the location where the services are actually performed.
Though these are generally rendered at the service provider’s premises, they could also be
© The Institute of Chartered Accountants of India
Place of Provision of Service
2.8
provided at the customer’s premises, or occasionally while the receiver is on the move.
1.
2.
Examples of such services are:•
cosmetic or plastic surgery
•
personal security service
•
health and fitness services
•
photography service (to individuals)
•
internet café service,
•
classroom teaching
It shall also include the service actually rendered by the provider to a person other than
the receiver, who is acting on behalf of the receiver, in terms of the contractual
arrangement between the provider and the receiver.
For instance, a film producer contracts with a make-up expert for make-up of the lead actors of his
film. In the given case, the film producer is the receiver of the service, but the service is rendered
to the actors, who are receiving the make-up service on behalf of the film producer. Hence,
notwithstanding that film producer does not qualify as the individual receiver in whose presence
the service is rendered, the nature of the service is such as can be rendered only to an individual,
thereby qualifying to be covered under this rule.
2.5 Rule 5-Place of provision of services relating to immovable
property
The place of provision of services provided directly in relation to an immovable property
including:•
services provided in this regard by experts and estate agents
•
provision of hotel accommodation by a hotel, inn, guest house, club or campsite, by
whatever, name called
•
grant of rights to use immovable property
•
services for carrying out or co-ordination of construction work, including architects or
interior decorators
shall be the place where the immovable property is located or intended to be located.
Analysis of the rule
In case of a service that is ‘directly in relation to immovable property’, the place of provision is
where the immovable property (land or building) is located, irrespective of where the provider
or receiver is located.
Immovable property shall include land, benefits to arise out of land, and things attached to the
earth, or permanently fastened to anything attached to the earth [Section 3(26) of the General
Clauses Act].
© The Institute of Chartered Accountants of India
2.9
Service Tax
Thus, properties such as buildings and fixed structures on land would be covered by the definition
of immovable property.
1.
Applicability of this rule: This rule applies if the service is directly in relation to
immovable property located in taxable territory. The immovable property must be clearly
identifiable to be the one from where, or in respect of which, a service is being provided.
In other words, there needs to be a very close link or association between the service
and the immovable property.
Following criteria will be used to determine if a service is in respect of immovable
property located in the taxable territory:(i)
The service consists of lease, or a right of use, occupation, enjoyment or
exploitation of an immovable property;
(ii)
The service is physically performed or agreed to be performed on an immovable
property (e.g. maintenance) or property to come into existence (e.g. construction);
(iii) The direct object of the service is the immovable property in the sense that the service
enhances the value of the property, affects the nature of the property, relates to
preparing the property for development or redevelopment or the environment within the
limits of the property (e.g. engineering, architectural services, surveying and subdividing, management services, security services etc);
(iv) The purpose of the service is:
(a) the transfer or conveyance of the property or the proposed transfer or
conveyance of the property (e.g., real estate services in relation to the actual
or proposed acquisition, lease or rental of property, legal services rendered to
the owner or beneficiary or potential owner or beneficiary of property as a
result of a will or testament);
(b) the determination of the title to the property.
Examples of land related services
2.
•
Renting of immovable property
•
The surveying (such as seismic, geological or geomagnetic) of land or seabed
•
Legal services such as dealing with applications for planning permission
•
The supply of hotel accommodation or warehouse space
Non-applicability of this rule: This rule does not apply if a provision of service has
only an indirect connection with the immovable property, or if the service is only an
incidental component of a more comprehensive supply of services.
Examples of services which are not land related
•
Advice or information relating to land prices or property markets because they
© The Institute of Chartered Accountants of India
Place of Provision of Service
2.10
do not relate to specific sites.
•
Services of an agent who arranges finance for the purchase of a property.
•
Repair and maintenance of machinery which is not permanently installed. This
is a service related to goods.
2.6. Rule 6-Place of provision of services relating to events
The place of provision of services provided by way of admission to, or organization of, a
cultural, artistic, sporting, scientific, educational, or entertainment event, or a celebration,
conference, fair, exhibition, or similar events, and of services ancillary to such admission, shall
be the place where the event is actually held.
For instance, a well-known singer from USA intends to organize a Concert in Delhi and Mumbai. Any
service provided by an event manager, or the right to entry will be taxable in India.
1.
Example of a service ancillary to organization of an event: Provision of sound
engineering for an artistic event is a prerequisite for staging of that event and should be
regarded as a service ancillary to its organization.
2.
Example of a service ancillary to admission to an event: A service of hiring a specific
equipment to enjoy the event at the venue (against a charge that is not included in the
price of entry ticket) is an example of a service that is ancillary to admission.
3.
Event-related services that would be treated as not ancillary to admission to an
event: A service of courier agency used for distribution of entry tickets for an event is a
service that is not ancillary to admission to the event.
2.7 Rule 7- Place of provision of services provided at more than one
location
Where any service referred to in rules 4, 5, or 6 is provided at more than one location,
including a location in the taxable territory, its place of provision shall be the location in the
taxable territory where the greatest proportion of the service is provided.
Analysis of the rule
This rule covers situations where the actual performance of a service is at more than one
location, and occasionally one (or more) such locations may be outside the taxable territory.
1.
This rule is applicable in case of performance-based services or location-specific
services (immovable property related or event-linked).
2.
It does not intend to capture insignificant portion of a service rendered in any part of the
taxable territory like mere issue of invoice, processing of purchase order or recovery,
which are not by way of service actually performed on goods.
For instance, an Indian firm provides a ‘technical inspection and certification service’ for a
newly developed product of an overseas firm (for a newly launched motorbike which has to
© The Institute of Chartered Accountants of India
2.11
Service Tax
meet emission standards in different States or countries). The testing is carried out in
Maharashtra (20%), Kerala (25%), and Colombo (55%).
Notwithstanding the fact that the greatest proportion of service is outside the taxable
territory, the place of provision will be the place in the taxable territory where the greatest
proportion of service is provided, which in this case is Kerala.
2.8. Rule 8- Place of provision of services where provider and
recipient are located in taxable territory
Place of provision of a service, where the location of the provider of service as well as that of
the recipient of service is in the taxable territory, shall be the location of the recipient of
service.
Analysis of the rule
This rule is applicable in a situation where on application of one of the earlier rules i.e. rule 4
to 6, the place of provision of service provided in the taxable territory may be determinable to
be outside the taxable territory. However, both service provider and the service receiver are
located in the taxable territory.
In this case, the place of provision of service is the location of the service receiver, i.e. the
place of provision will be deemed to be in the taxable territory, notwithstanding the earlier
rules.
For instance, a machinery of Bahara India Ltd of Bangalore develops a technical problem in
London. Bharat Machineries of Delhi deputes some engineers to undertake repairs at the site in
London. But for this rule, rule 4(1) would apply in this case, and the place of provision would be
London i.e. outside the taxable territory.
However, by application of rule 7, since the service provider, as well as the receiver, are located in
the taxable territory, the place of provision of this service will be within the taxable territory.
2.9. Rule 9-Place of provision of specified services
The place of provision of the specified services shall be the location of the service provider.
Specified services are as follows:(a) Services provided by a banking company, or a financial institution, or a non-banking
financial company, to account holders;
(b) Online information and database access or retrieval services;
(c) Intermediary services;
(d) Service consisting of hiring of means of transport, upto a period of one month.
© The Institute of Chartered Accountants of India
Place of Provision of Service
2.12
Analysis of the rule
Specified services in rule 9 are as follows:(a) Banking services provided to account holders: Banking services provided to persons
other than account holders will be covered under the main rule-rule 3.
Example of services provided by a banking company/financial institution etc. to account
holders in the normal course of business:(i)
Services linked to or requiring opening and operation of bank accounts such as
lending, deposits, safe deposit locker etc.
(ii)
Transfer of money including telegraphic transfer, mail transfer, electronic transfer
etc.
Financial leasing services including equipment leasing and hire-purchase, merchant
banking services, asset management services, advisory and other auxiliary financial
services are few instances of the services that are generally NOT provided by a banking
company or financial institution to an account holder in the ordinary course of business.
“Account” means an account bearing interest to the depositor, and includes a non-resident
external account and a non-resident ordinary account [Rule 2(b)].
Banking company: means a banking company as defined in section 5 of the Banking
Regulation Act, 1949*, and
includes the State Bank of India, any subsidiary bank as defined in the State Bank of India
(Subsidiary Banks) Act, 1959, any corresponding new bank constituted by section 3 of the
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and any other
financial institution notified by the Central Government in this behalf.
*As per section 5 of the Banking Regulation Act, 1949, "banking company" means any
company which transacts the business of banking in India;
Explanation. — Any company which is engaged in the manufacture of goods or carries on
any trade and which accepts deposits of money from the public merely for the purpose of
financing its business as such manufacturer or trader shall not be deemed to transact the
business of banking within the meaning of this clause [Rule 2(c)].
Financial institution: Financial institution means any non-banking institution which carries
on as its business or part of its business any of the following activities, namely:–
(i)
the financing, whether by way of making loans or advances or otherwise, of any activity
other than its own;
(ii)
the acquisition of shares, stock, bonds, debentures or securities issued by a
Government or local authority or other marketable securities of a like nature;
(iii) letting or delivering of any goods to a hirer under a hire-purchase agreement as defined
in section 2(c) of the Hire-Purchase Act, 1972;
(iv) the carrying on of any class of insurance business;
(v)
managing, conducting or supervising, as foreman, agent or in any other capacity, of
© The Institute of Chartered Accountants of India
2.13
Service Tax
chits or kuries as defined in any law which is for the time being in force in any State, or
any business, which is similar thereto;
(vi) collecting, for any purpose or under any scheme or arrangement by whatever name
called, monies in lumpsum or otherwise, by way of subscriptions or by sale of units, or
other instruments or in any other manner and awarding prizes or gifts, whether in cash
or kind, or disbursing monies in any other way, to persons from whom monies are
collected or to any other person,
but does not include any institution, which carries on as its principal business,–
(a)
agricultural operations; or
(aa) industrial activity; or
(b)
the purchase or sale of any goods (other than securities) or the providing of any
services; or
(c)
the purchase, construction or sale of immovable property, so however, that no portion
of the income of the institution is derived from the financing of purchases, constructions
or sales of immovable property by other persons [Rule 2(e)].
Non-banking financial company means(i)
a financial institution which is a company; or
(ii) a non-banking institution which is a company and which has as its principal business
the receiving of deposits, under any scheme or arrangement or in any other manner, or
lending in any manner; or
(iii) such other non-banking institution or class of such institutions, as the Reserve Bank of
India may, with the previous approval of the Central Government and by notification in the
Official Gazette specify [Rule 2(k)].
(b) Online information and database access or retrieval services: As per rule 2(l),
“online information and database access or retrieval services” means providing data or
information, retrievable or otherwise, to any person, in electronic form through a
computer network.
1.
These services must be delivered over the internet or an electronic network which
relies on the internet or similar network for their provision.
2.
They should be completely automated, and require minimal human intervention.
3.
Examples of these services are:-
4.
•
Web-based services providing access or download of digital content
•
digitized content of books and other electronic publications
•
online news, flight information and weather reports.
Sale or purchase of goods, articles etc over the internet, repair of software, or of
hardware through the internet from a remote location, telecommunication services
provided over the internet etc. shall not be included in the said services.
© The Institute of Chartered Accountants of India
Place of Provision of Service
2.14
(c) Intermediary services: As per rule 2(f), “intermediary” means a broker, an agent or any
other person, by whatever name called, who arranges or facilitates a provision of a
service (‘main’ service) between two or more persons, but does not include a person
who provides the main service on his account.
Thus, following persons are excluded:(i)
Intermediaries in respect of goods (such as a commission agent i.e. a buying or
selling agent, or a stockbroker).
(ii)
A person who provides the main service on his own account.
(i)
Guiding principles to determine whether a person is an intermediary or not
In order to determine whether a person is acting as an intermediary or not, the
following factors need to be considered:1.
An intermediary cannot alter the nature or value of the service, the supply of
which he facilitates on behalf of his principal, although the principal may
authorize the intermediary to negotiate a different price.
2.
The value of an intermediary’s service is invariably identifiable from the main
supply of service that he is arranging.
3.
The service provided by the intermediary on behalf of the principal is clearly
identifiable.
(ii) Services qualifying as ‘intermediary services’
Services provided by the following persons will qualify as ‘intermediary services’:(i)
Travel Agent (any mode of travel)
(ii)
Tour Operator
(iii) Commission agent for a service
(iv) Recovery Agent
Any other service wherever a provider of any service acts as an intermediary for
another person, as identified by the guiding principles outlined above.
(d) Service consisting of hiring of means of transport, upto a period of one month:
Following will constitute means of transport:•
Land vehicles such as motorcars, buses, trucks;
•
Vessels;
•
Aircraft;
•
Vehicles designed specifically for the transport of sick or injured persons;
•
Mechanically or electronically propelled invalid carriages;
•
Trailers, semi-trailers and railway wagons.
© The Institute of Chartered Accountants of India
2.15
Service Tax
The following are not ‘means of transport’:•
Racing cars;
•
Containers used to store or carry goods while being transported;
•
Dredgers, or the like.
Means of transport means any conveyance designed to transport goods or persons
from one place to another [Rule 2(j)].
2.10 Rule 10-Place of provision of goods transportation services
The place of provision of services of transportation of goods, other than by way of mail or
courier, shall be the place of destination of the goods.
However, the place of provision of services of goods transportation agency shall be the
location of the person liable to pay tax.
Analysis of the rule: This rule covers the service of transportation of goods, by any mode of
transport (air, vessel, rail or by a goods transportation agency). However, it does not cover the
transportation of goods by courier or mail.
For instance, a consignment of polished diamonds is consigned from Mumbai to New Jersey. The
place of provision of goods transportation service will be New Jersey (outside India, hence not
liable to service tax).
Conversely, if a consignment of glassware is consigned from New York to Chennai, the place of
provision will be Chennai.
Exception to the rule: Rule 2(1)(d) of Service Tax Rules, 1994 provides that where a service of
transportation of goods is provided by a ‘goods transportation agency’, and the consignor or
consignee is covered under any of the specified categories prescribed therein, the person liable to
pay tax is the person who pays, or is liable to pay freight (either himself or through his agent) for
the transportation of goods by road in a goods carriage. The place of provision of services of
goods transportation agency shall be the location of the person liable to pay tax.
Person liable to pay tax shall mean the person liable to pay service tax under section 68 of the Act
or under rule 2(1)(d) of the Service Tax Rules, 1994 [Rule 2(m)].For instance, a goods transportation
agency ABC located in Delhi transports a consignment of new motorcycles from the factory of XYZ
in Gurgaon (Haryana), to the premises of a dealer in Bhopal, Madhya Pradesh. XYZ is a registered
assessee and is also the person liable to pay freight and hence person liable to pay tax, in this case.
Here, the place of provision of the service of transportation of goods will be the location of XYZ i.e.
Haryana.
2.11 Rule 11- Place of provision of passenger transportation service
The place of provision in respect of a passenger transportation service shall be the place
where the passenger embarks on the conveyance for a continuous journey.
© The Institute of Chartered Accountants of India
Place of Provision of Service
2.16
Analysis of the rule
A “continuous journey” means a journey for which:(i)
a single ticket has been issued for the entire journey; or
(ii)
more than one ticket or invoice has been issued for the journey, by one service provider,
or by an agent on behalf of more than one service providers, at the same time, and there
is no scheduled stopover** between any of the legs of the journey [Rule 2(d)].
**Stopover means a place where a passenger can disembark either to transfer to
another conveyance or break his journey for a certain period in order to resume it at a
later point of time. All stopovers do not cause a break in continuous journey. Only such
stopovers will be relevant for which one or more separate tickets are issued.
Leg of journey means a part of the journey that begins where passengers embark or
disembark the conveyance, or where it is stopped to allow for its servicing or refueling,
and ends where it is next stopped for any of those purposes [Rule 2(g)].
For instance, a travel on Delhi-London-New York-London-Delhi on a single ticket with a halt
at London on either side, or even both, will be covered by the definition of continuous
journey. However if a separate ticket is issued, say New York-Boston-New York, the same
will be outside the scope of a continuous journey.
2.12 Rule 12-Place of provision of services provided on board a
conveyance
Place of provision of services provided on board a conveyance during the course of a
passenger transport operation, including services intended to be wholly or substantially
consumed while on board, shall be the first scheduled point of departure of that
conveyance for the journey.
Analysis of the rule
This rule covers the service which has been provided on a conveyance (aircraft, vessel, rail, or
roadways bus) during the course of a passenger transport operation. The place of provision in
such a case would be the first scheduled point of departure of that conveyance for the journey.
Such services must be provided against a specific charge, and not supplied as part of the fare.
For instance, a video game or a movie-on-demand is provided as on-board entertainment during
the Kolkata-Delhi leg of a Bangkok-Kolkata-Delhi flight. The place of provision of this service will
be Bangkok (outside taxable territory, hence not liable to tax).
If the above service is provided on a Delhi-Kolkata-Bangkok-Jakarta flight during the BangkokJakarta leg, then the place of provision will be Delhi (in the taxable territory, hence liable to tax).
© The Institute of Chartered Accountants of India
2.17
Service Tax
2.13 Rule 13-Powers to notify
circumstances for certain purposes
description
of
services
or
In order to prevent double taxation or non-taxation of the provision of a service, or for the
uniform application of rules, the Central Government shall have the power to notify any
description of service or circumstances in which the place of provision shall be the place of
effective use and enjoyment of a service.
Analysis of the rule
The rule is an enabling power to correct any injustice being met due to the applicability of
rules in a foreign territory in a manner which is inconsistent with these rules leading to double
taxation. Due to the cross border nature of many services, it is also possible in certain
situations to set up businesses in a non-taxable territory while the effective enjoyment, or in
other words consumption, may be in taxable territory.
This rule is also meant as an anti-avoidance measure where the intent of the law is sought to
be defeated through ingenious practices unknown to the ordinary ways of conducting
business.
2.14 Rule 14-Order of application of rules
Rule 14 of the said rules provide that notwithstanding anything stated in any rule, where the
provision of a service is, prima facie, determinable in terms of more than one rule, it shall be
determined in accordance with the rule that occurs later among the rules that merit equal
consideration. Hence, in case where the nature of a service, or the business activities of the
service provider, may be such that two or more rules may appear equally applicable, later rule
would prevail.
For instance, an architect based in Mumbai provides his service to an Indian Hotel Chain (which has
business establishment in New Delhi) for its newly acquired property in Dubai. If Rule 5 (Property
rule) were to be applied, the place of provision would be the location of the property i.e. Dubai
(outside the taxable territory). With this result, the service would not be taxable in India.
Whereas, by application of Rule 8, since both the provider and the receiver are located in taxable
territory, the place of provision would be the location of the service receiver i.e. New Delhi. Place of
provision being in the taxable territory, the service would be taxable in India.
By application of Rule 14, the later of the Rules i.e. Rule 8 would be applied to determine the place of
provision.
2.15 Clarification
Place of provision of service in relation to remittances from abroad
Service tax is not leviable on the amount of foreign currency remitted to India from
overseas as definition of ‘service’ under section 65B(44) specifically excludes
transactions in money.
© The Institute of Chartered Accountants of India
Place of Provision of Service
2.18
Service tax would also not be leviable on the fee or conversion fee chargeable for
sending such money as the company conducting the remittances and the person
sending the money are located outside India. Such services are deemed to be provided
outside India in terms of the Place of Provision of Service Rules, 2012.
Further, Indian counterpart or financial institutions or entity who charges the foreign
bank or any other entity for the services provided at the receiving end will also not be
liable to service tax as the place of provision of such service shall be the location of the
recipient of the service, i.e., outside India, in terms of rule 3 of the Place of Provision of
Service Rules, 2012.
[Circular No.163/14/2012 ST dated 10.07.2012]
2.16 Export of services [Rule 6A of the Service Tax Rules, 1994]
(i)
Conditions to be fulfilled for service to be treated as export of service [Sub-rule
(1)]:-The provision of any service provided or agreed to be provided shall be treated as
export of service when,(a) the service provider is located in the taxable territory,
(b) the service receiver is located outside India and the place of provision of the service
is outside India,
(c) the service is not a service specified in the negative list (Section 66D) of the Act,
(d) the payment for such service has been received by the service provider in
convertible foreign exchange, and
(e) the service provider and service receiver are not merely establishments of a distinct
person in accordance with item (b) of Explanation 3 of clause (44) of section 65B of
the Act.
As per item (b) of Explanation 3 of clause (44) of section 65B an establishment of a person
in the taxable territory and any of his other establishment in a non-taxable territory shall be
treated as establishments of distinct persons.
(ii) Central Government empowered to grant rebate on inputs/input services used in
providing service exported [Sub-rule (2)]: Where any service is exported [in terms of
sub-rule (1) above], the Central Government may, by notification, grant rebate of service
tax or duty paid on input services or inputs, as the case may be, used in providing such
service and the rebate shall be allowed subject to such safeguards, conditions and
limitations, as may be specified, by the Central Government, by notification.
Safeguards, conditions and limitations for claiming rebate on inputs and input
services: In exercise of this power, the Central Government has issued Notification No.
39/2012-ST dated 20.06.2012 providing the safeguards, conditions and limitations for
claiming rebate on inputs and input services:Conditions and limitations:1.
Service has been exported in terms of rule 6A.
© The Institute of Chartered Accountants of India
2.19
Service Tax
2.
Duty on the inputs/service tax on input services, rebate of which has been claimed,
has been paid to the supplier/service provider respectively.
If the exporter himself is liable to pay for any input services; he should have paid the
service tax and cess to the Central Government.
3.
No CENVAT credit has been availed of on inputs and input services on which rebate
has been claimed.
4.
In case any of the aforesaid conditions is not fulfilled, rebate paid, if any, shall be
recoverable with interest in accordance with the provisions of section 73 and section
75 of the Finance Act, 1994.
5.
Amount of rebate claimed is not less than ` 1,000.
The Notification also prescribes the procedure for claiming the rebate on inputs and input
services.
Meaning of important terms
1.
2.
Service tax and cess: means,(a)
Service tax leviable under section 66 or section 66B of the Finance Act, 1994;
(b)
Education cess on taxable service levied under section 91 read with section 95 of
the Finance (No.2) Act, 2004; and
(c)
Secondary and Higher Education Cess on taxable services levied under section
136 read with section 140 of the Finance Act, 2007.
Duty: means, duties of excise leviable under the following enactments, namely:(a)
Central Excise Act, 1944.
(b)
Additional Duties of Excise (Goods of Special Importance) Act, 1957.
(c)
Additional Duties of Excise (Textiles and Textile Articles) Act, 1978.
(d)
National Calamity Contingent duty leviable under section 136 of the Finance Act,
2001, as amended by section 169 of the Finance Act, 2003, section 3 of the
Finance Act, 2004 and further amended by section 123 of the Finance Act, 2005.
(e)
Special duty of excise collected under a Finance Act.
(f)
Additional duty of excise as levied under section 157 of the Finance Act, 2003.
(g)
Education Cess on excisable goods as levied under section 91 read with section
93 of the Finance (No.2) Act, 2004.
(h)
Additional duty of excise leviable under section 85 of the Finance Act, 2005.
(i)
Secondary and Higher Education Cess on excisable goods leviable under section
136 read with section 138 of the Finance Act, 2007.
© The Institute of Chartered Accountants of India